A recently published blueprint by the Climate Policy Initiative (CPI) examines the existing interventions on providing debt relief, highlighting that middle-income countries do not get the needed support to revive growth and climate action. It, therefore, proposes eligibility and condition criteria for Debt for Climate Swaps.
In accordance with the DRGR report, the blueprint stresses that many middle-income countries – which are not eligible for the Debt Service Suspension Initiative (DSSI) – are heavily indebted and urgently need debt relief.
Next to that, the authors emphasize that spending towards reviving growth or achieving climate goals will, in this situation, likely take a backseat. As they now have often worrying public debt profiles, these economies are likely to face the economic and social costs of climate change while also grappling with the fallout from the Covid-19 pandemic.
As a solution, Climate Policy Initiative examines Debt for Climate (DFC) swaps. Instead of continuing to make external debt payments in a foreign currency, the debtor nation makes payments in local currency to finance climate projects domestically on agreed upon terms: “DFC swaps can reduce the level of indebtedness as well as free up fiscal resources to be spent on green investments”, the blueprint argues, suggesting eligibility and condition criteria for the mechnism.
Read the whole blueprint here.